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State utility regulators on Thursday approved a settlement capping at $2.59 billion what Duke Energy ratepayers would shoulder for construction of the company’s Edwardsport coal gasification plant, which has suffered massive cost overruns.

The Indiana Utility Regulatory Commission modified the settlement slightly—requiring Duke to also credit customers $28 million for cost control incentives the utility received that the commission “found to be unwarranted.”

However, the commission noted that while the settlement limits project costs, it allows the utility to recover financing charges accrued during construction.

The plant initially was proposed to cost $1.98 billion. But overruns pushed the tab beyond $3.5 billion, with Duke shareholders forced to eat about $900 million of the added cost.

Citizens Action Coalition, which had opposed the settlement, said Duke ratepayers will have to pay at least $655 million in financing charges over and above the settlement cap. It wants the commission to revisit its prior approval of the plant.

The settlement—reached earlier this year between Duke, its big industrial customers and the Office of Utility Consumer Counselor—was opposed by CAC, Sierra Club, Save the Valley and Valley Watch.

CAC accuses Duke and its contractors of mismanaging the project and of unduly influencing the IURC.

Former IURC Chairman David Lott Hardy was fired by Gov. Mitch Daniels in 2010 after e-mails showed Hardy was chummy with Duke executives and that he allowed a former administrative law judge to participate in the Edwardsport case while the judge sought a job with the utility.

“We have a lot to mull over,” said Kerwin Olson, executive director of CAC. “This is pretty much a rubber stamp,” he said of the commission’s ruling Thursday.

The groups likely will appeal the decision.

“Perhaps most important of all is our firm position that customers should not have to pay for any cost overruns which are attributable to imprudence or mismanagement of the project, which by Duke, GE, Bechtel or their many subcontractors,” said Olson.

The downstate generating plant was to have gone online this fall, although Duke now says that won’t occur until mid-2013 as it works through technical issues. The complex plant will not burn coal to generate power but rather convert coal to a cleaner-burning gas.

In a statement Thursday, Duke spokeswoman Angeline Protogere said: "The plant will help us meet increasingly strict federal environmental regulations while still using an abundant local resource, Indiana coal. Edwardsport will serve the electric energy needs of our Indiana customers for decades to come."